Bitcoin custodian and licensed private bank Xapo Bank has partnered with a fintech firm Circle to integrate USD Coin (USDC) payment methods as an alternative to SWIFT. Payment rails refer to the infrastructure and technology used to facilitate the movement of funds between parties to a financial transaction. Payment rails come in many forms, including traditional bank transfers, credit card networks, and blockchain-based platforms.
We are pleased to be the first bank in the world to fully integrate with USDC, allowing our members to send and receive USDC from their US dollar accounts, free of charge.
Further: https://t.co/ep3wx0vLLn#BancoPrivadoXapo pic.twitter.com/Obed371oiT
โ Xapo Private Bank (@bancoprivadoxapo) March 20, 2023
Xapo Bank shared that the new feature allows its members to bypass the cumbersome and expensive FAST pay system through outrails added to its existing USDC on-ramps. Using the USDC stablecoin, members can deposit and withdraw funds from Xapo free of charge and benefit from a USDC to US dollar conversion rate. In addition, all USDC deposits are automatically converted to dollars, allowing members to earn an annual interest rate of up to 4.1%.
According to the announcement, Xapo Bank is a fully licensed and regulated bank and a member of the Gibraltar Deposit Guarantee Scheme (GDGS), which protects depositors' dollar deposits up to $100,000. Additionally, Xapo Bank shared that it does not participate in the participation of any cryptocurrency deposits, and all deposits are automatically converted to dollars once received by the bank. Xapo claims that this reduces exposure to any risk associated with fluctuating crypto markets.
Xapo claims its business model differs from traditional banks in that it does not engage in lending activities and does not rely on fractional-reserve banking to generate profit. Instead, the private bank holds all client funds on reserve and invests them in โshort-term, highly liquid assetsโ to pass the interest earned on to its clients.
Related: Traditional banks rely on a "little buffer": Paris Blockchain Week 2023
As previously reported by Cointelegraph, Moody's Investor Service warned that USDC Grade, which occurred on March 10, could negatively affect stablecoin adoption and lead to increased regulatory scrutiny. The credit ratings agency argued that the recent turmoil in the traditional banking sector and the decoupling of the USDC could increase resistance to fiat-backed stablecoins.
The decoupling of the USDC occurred after the sudden collapse of Silicon Valley Bankor SVB, on March 10. The SVB collapse was a significant event risk for USDC issuer Circle Internet Financial, which had $3.3 billion in assets tied up at the bank.
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